Saturday, November 12, 2005

Hedging my home equity risk

I have just posted the following on IBFnet in response to David Loundy's remarks therein:

David Loundy had written:

Mahmoud El-Gamal issued a challenge-- anyone who can prove that his conventional mortgage is riba, and that they have a better product that is not riba, will earn his refinance. I believe (and he can correct me if I am wrong), that I have convinced him that according to his stated measures his mortgage may not be riba at this very moment, but that it could be ribawi in the future-- just at the moment he would most wish it not to be. He also told me, off of this list, what it would take for me to produce a product that he would deem sufficiently better to earn his refinance. I hope to be able to provide him with such a product within the next year.

My clarification was this:

The point is quite straight forward. I have roughly 50% of my financial net worth in home equity, and 50% in my retirement plan. I feel that the 50% in home equity is too risky, and insufficiently diversified. A good product to hedge this risk would be a housing price hedgelet such as the ones I could get on http://www.hedgestreet.com/hedgelets/. Unfortunately, my area in the Houston suburbs does not have an available hedgelet. I can try to synthesize my own through other house prices, inflation and interest rates, but I would be exposed to multiplebasis risks that make the job of putting the hedge in place too difficult.

If a financial intermediary solves this market failure for my home equity hedge, I would buy it. I'll be watching with interest to see how David tackles the problem. It would be nice if others in the US "Islamic" mortgage market were also working on similar products, rather than merely capitalizing on religious insecurities of Muslims and misinformation by those who claim -- falsely, as proven by their own "Islamic" products -- that Islam forbids all forms of interest.

I believe when Allah forbade Riba, for sure He didin't want to make it hard for his servants. On the contrary He wanted to make it easier for them. All what we need to do is to think and use our brain.

For eaxample, we can convert our household products and services into investment of expense and make money. For more info, please visit my website: www.notomortgage.com where a proven, affordable, common-sense alternative is presnted.